How To Know If You’re Ready To Retire

Retiring is a huge life event, and it isn’t one that comes with many do-overs. You have to get it right the first time.

Luckily, there are ways to prepare for retirement—and even practice it—to help ensure you’re ready when the day comes.

What to do first

A few years before you plan to retire, have a practice run. If you have a retirement plan that gives you a clear picture of how much money you’ll have to live on annually, spend a full year to two years living only on that amount. If you don’t, your first step is to meet with a financial advisor to get sense of your retirement income estimate.

If you can live comfortably on the decided amount, that’s great. If not, it’s better to know that now rather than later, and it’s time to devise a plan to increase your future income.

Have a timeline for your decisions

Do you know when you must make certain retirement-related decisions? Do you even know what decisions you’ll need to make? Having a clear idea of these decisions and a timeline to make them will reduce your stress and make retirement a smoother event.

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Pre-retirement decisions

Before you retire, you’ll need to determine if you have any debts that need to be refinanced. It’s hard to refinance mortgages or other loans when you don’t have demonstrable income, so do this long before you give notice at work.

You’ll also need to decide how you’ll handle long-term care expenses and if you want to use long term care insurance for some of those potential costs. Applying for this insurance should ideally be done ten years prior to retiring, and three to five years before is basically the last chance for it to be affordable.

Retirement day decisions

Retiring likely means losing your employer-sponsored benefits, so you’ll need to make decisions about health insurance. If you’re retiring at or after age 65, then you can seamlessly transition into Medicare. Make sure you remember to enroll in Medicare Part A 60 to 90 days before your 65th birthday whether you’re planning to retire or not. For Part B, you can wait to enroll until after your retirement as long as you’re at least 65 years old. You can learn more about Medicare in this episode of my podcast.

If you’re retiring after age 63 ½, you can use COBRA provisions to continue your employer health plan for up to 18 months until you’re eligible for Medicare. However, if you’re retiring earlier than that, you’ll either need to join your spouse’s health plan or to use the health insurance exchange in your home state.

If you’re one of the fortunate few people who will still be receiving a pension, you’ll need to decide how you’d like to receive your benefit. You will likely be given the option to maximize your benefit as a single person—meaning it expires after your death—or a few options on how you’d like a spouse to receive income from your pension should he or she outlive you.

Post-retirement decisions

Social Security is a very complex benefit, and timing your benefit claim is an important decision you’ll need to make. You and your spouse must determine whether to claim immediately at age 62 or to wait until full retirement age or even age 70 to begin receiving benefits. The decisions you and your spouse make can greatly impact how much money you’re eligible to receive during your lifetimes and during a period of widowhood for either of you. While I could go on and on about this, I’ll let those interested read more in this article I published on the topic.

You’ll also want to review your current insurance coverages to see where you can save money. Since you’re no longer commuting to work, you may be able to lower your car insurance premium. If you’re paying for disability insurance, you’ll no longer need it and can let it expire. Lastly, if you have term life insurance, you may no longer need the extra death benefits and can consider discontinuing the coverage after claiming your Social Security and pension income.

The most important step

The most important thing to do before you retire is make sure you have a substantial nest egg you’ve built up over the years.

You don’t know what the future will hold, and having access to capital—especially funds not subject to market volatility—is vital to a successful retirement.

The lesson

There’s a lot to consider when you’re thinking about retiring. Starting to make decisions and prepare for the life change early will help you be successful in your retirement.

Retirement is the one thing you cannot borrow money to accomplish, so make sure you’re able to live off the income you’ll have. Returning to work out of necessity after you’ve started your retirement is not only the opposite of what you’ll want to do, but it can also be incredibly difficult to do so.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.

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